Nebraska Monthly Economic Indicators: July 19, 2013
Prepared by the UNL College of Business Administration, Department of Economics
Authors: Dr. Eric Thompson, Dr. William Walstad
Graduate Research Assistants: Shannon McClure,
Mihdi Vahedi
Leading Economic Indicator..…………………………………………….1
Coincident Economic Indicator……………………………………….…3
Weights and Component Shares…………………………………….…5
Performance of the LEI-N and CEI-N…………….……………………6
Summary: The Leading Economic Indicator – Nebraska (LEI-N) rose by 0.87% during June 2013.
The increase in the LEI-N, which predicts economic growth in the state six months in the future,
follows a small increase in May. Taken together, results for the two months suggest moderate
economic growth in Nebraska at the end of 2013. Such moderate expectations are particularly
appropriate because improvement in the LEI-N during June was not broad-based. Looking at
individual components of the LEI-N, only two of the six components rose during June, three
declined and one was unchanged. Single-family building permits rose during June. But the
primary reason for the improvement in the LEI-N was a sharp decline in initial unemployment
insurance claims during the month, which is a positive signal for the job market and the
economy. Among declining components, airline passengers and manufacturing hours both
declined modestly during June. Further, the value of the U.S. dollar rose during June, which is
negative for businesses that export. Finally, business expectations were neutral during June.
Respondents to the Survey of Nebraska Business were as likely to project a decrease in sales and
employment at their business over the next six month as they were to project an increase.
Leading Economic Indicator – Nebraska
Figure 1 shows the change in the Leading Economic Indicator – Nebraska (LEI-N) in June 2013, compared
to the previous month. The LEI-N, which predicts economic growth six months into the future, increased
by 0.87% in June.
Figure 1: Change in LEI-N
June 2013
2.48%
1.24%
0.00%
Rapid Growth
Moderate Growth
0.87%
Moderate Decline
-1.24%
Rapid Decline
-2.48%
1
Figure 2 shows the growth in the LEI-N over the last 6 months. The LEI-N began to grow in February.
Over the last three months, the LEI-N showed solid growth in April and June but was nearly unchanged
during May. These results imply moderate, rather than strong, economic growth in Nebraska at the end
of 2013. This is particularly true because the improvement in the LEI-N during June was not broadbased, as is discussed below.
Figure 2: Change in LEI - N
Last 6 Months
2.48%
0.99%
1.24%
0.29%
0.87%
0.36%
0.01%
0.00%
-0.03%
-1.24%
-2.48%
Jan 13
Feb 13
Mar 13
Apr 13
May 13
Jun 13
Figure 3 shows the components of change in the Leading Economic Indicator – Nebraska during June
2013. The change in the overall LEI – N is the weighted average of changes in each component (see page
5). Only two of the six components of the leading indicator rose in June. Building permits rose, in line
with an ongoing improvement in the housing sector. But, the primarily reason for the increase in the LEIN was a sharp decline in initial unemployment insurance claims during June. This is a positive signal for
economic growth. Businesses-owners typically maintain more or their workers when they anticipate
growing demand. Among declining components, airline passenger counts and manufacturing hours both
declined modestly during June. The value of the U.S. also continued to rise in June, which will pressure
businesses that export. Business expectations were neutral in June. Respondents to the Survey of
Nebraska Business were as likely to project a decrease in sales and employment in their business over
the next six months as they were to project an increase. Finally, note that the trend adjustment
component pictured in Figure 3 is discussed on page 5.
Figure 3: LEI-N Components of Change
June 2013
2.48%
1.18%
1.24%
0.06%
0.00%
-0.13%
-0.29%
Airline Passengers
Dollar Exchange
Rate
0.00%
-1.24%
0.12%
-0.07%
Trend Adjustment
Business
Expectations
Manufacturing
Hours
Initial UI Claims
Building Permits
-2.48%
2
Coincident Economic Indicator – Nebraska
The Coincident Economic Indicator - Nebraska (CEI-N) is a measure of the current size of the Nebraska
economy. The CEI-N increased by 0.50% between May and June of 2013, as seen in Figure 4.
Figure 4: Change in CEI-N
June 2013
2.68%
1.34%
0.00%
Rapid Growth
Moderate Growth
0.50%
Moderate Decline
-1.34%
Rapid Decline
-2.68%
The moderate increase in the CEI-N during June followed a decline in May and a modest increase in
April. Taken together, these results indicate that there was only anemic growth in the Nebraska
economy during the second quarter of 2013. This growth, however, represents an improvement from
the decline seen during the first quarter, and may suggest that growth is beginning to improve in
Nebraska.
Figure 5: Change in CEI-N
Last 6 Months
2.68%
1.34%
0.15%
0.50%
0.23%
0.00%
-1.34%
-0.52%
-0.50%
Jan 13
Feb 13
-0.69%
-2.68%
Mar 13
Apr 13
May 13
Jun 13
As seen in Figure 6, two of the four components of the CEI-N rose during June. Growth in private wages
was solid, reflecting improvements in employment, hourly wages and hours worked during the month.
Agricultural prices also rose, but only slightly. There was a modest decline in electricity sales in June,
after adjusting for weather conditions during the month. Finally, respondents to the Survey of Nebraska
Business reported a modest decline in sales activity in recent months. A detailed discussion of the
components of the CEI-N, as well as the LEI-N, can be found at www.cba.unl.edu in Technical Report:
Coincident and Leading Economic Indicators- Nebraska.
3
Figure 6: CEI-N Components of Change
June 2013
2.68%
0.99%
1.34%
0.03%
0.00%
-1.34%
-0.22%
-0.30%
Business
Conditions
Agricultural
Commodities
Private
Wages
Electricity
Sales
-2.68%
Figure 7 shows the forecast for the CEI-N over the next six months. The forecast reflects modest
improvement in the LEI-N over the past six months, as seen in Figure 2, and portends moderate growth
in the CEI-N through the end of 2013. Moderate growth in CEI-N during the second half of the year will
generate moderate economic growth for the year 2013 overall.
Figure 7: 6-Month Forecast of
Coincident Economic Indicator - Nebraska
1.00%
112.00
0.61%
0.50%
0.43%
0.30%
0.33%
0.33%
111.00
0.06%
0.00%
110.00
-0.50%
109.00
-1.00%
108.00
Jun 13
Jul 13
Aug 13
Sep 13
Index Growth
Oct 13
Nov 13
Dec 13
Index Value
4
Weights and Component Shares
Table 1 shows the weights that were used to aggregate the individual components into the LEI-N and
CEI-N. The weights are the inverse of the “standardized” standard deviation of each component
variable. The term standardized simply means that the inverse standard deviations are adjusted
proportionately to sum to 1. This weighting scheme makes sense since individual components that are
more stable have smaller standard deviations, and therefore, a larger inverse standard deviation. A large
movement in a typically stable economic series would provide a more powerful signal of economic
change than a large movement in a series that regularly has large movements.
Table 1: Component Weights for LEI-N and CEI-N
Leading Economic Indicator - Nebraska
Standard
Deviation
14.1222
3.6141
1.2289
10.0418
1.4715
4.6299
Variable
SF Housing Permits
Airline Passengers
Exchange Rate
Initial UI Claims
Manufacturing Hours
Survey Business Expectations
Inverse
STD
0.0708
0.2767
0.8138
0.0996
0.6796
0.2160
Coincident Economic Indicator - Nebraska
Weight
(Inverse STD
Standardize)
0.0328
0.1283
0.3774
0.0462
0.3151
0.1002
Variable
Electricity Sales
Private Wages
Agricultural Commodities
Survey Business Conditions
Standard
Deviation
4.7979
1.7525
3.2858
3.1689
Inverse
STD
0.2084
0.5706
0.3043
0.3156
Weight
(Inverse STD
Standardize)
0.1490
0.4079
0.2175
0.2256
Tables 2 and 3 show the calculation for the change in CEI-N and LEI-N between May and June of 2013.
Weights (from Table 1) are multiplied by the change to calculate the contribution of each component.
Contributions are converted to percentage terms and summed. Note that in Table 2 a trend adjustment
factor is utilized in calculating LEI-N. This is done because LEI-N historically under-predicts CEI-N by
0.12% per month. The U.S. Leading Economic Indicator also has a trend adjacent factor.
T able 2: Component Contributions to the Change in Leading Economic Indicator
Leading Economic Indicator - Nebraska
Component Index Value (May 2007=100)
Component
Current
Previous
Difference
Weight
SF Building Permits
72.61
70.63
1.98
0.03
0.06
0.06%
Airline Passengers
89.19
90.23
-1.04
0.13
-0.13
-0.13%
U.S. Dollar Exchange Rate
(Inverse)
102.89
103.71
-0.82
0.38
-0.31
-0.29%
Initial Unemployment
Insurance Claims (Inverse)
94.97
67.91
27.05
0.05
1.25
1.18%
Manufacturing Hours
91.37
91.61
-0.24
0.32
-0.08
-0.07%
Survey Business
Expectations 1
49.95
-0.05
0.10
0.00
0.00%
0.13
0.12%
0.92
0.87%
Trend Adjustment
Total (weighted average)
1
106.68
105.76
Contribution
Percentage
Contribution
(Relative to
Previous LEI-N)
Survey results are a diffusion Index, which is always compared to 50
T able 3: Component Contributions to the Change in Coincident Economic Indicator
Coincident Economic Indicator - Nebraska
Component Index Value (May 2007=100)
Component
Current
Previous
Difference
Weight
Contribution
Percentage
Contribution
(Relative to
Previous CEI-N)
Electricity Sales
111.75
113.38
-1.63
0.15
-0.24
-0.22%
96.56
93.93
2.63
0.41
1.07
0.99%
155.36
155.20
0.17
0.22
0.04
0.03%
-1.43
0.23
-0.32
-0.30%
0.54
0.50%
Private Wage
Agricultural Commodities
Survey Business Conditions
Total (weighted average)
1
1
48.57
108.81
109.56
Survey results are a diffusion Index, which is always compared to 50
5
Performance of the LEI-N and CEI-N
Further information is available on both economic indicators to demonstrate how well the CEI-N tracks
the Nebraska economy and how well the LEI-N leads the CEI-N. Figure 8 shows the value of CEI-N and
the real gross state product (real GDP) in Nebraska for 2001 through 2011. The comparison ends in 2011
since this is the last year for which data on real gross state product is available. Annual real gross state
product data is provided by the Bureau of Economic Analysis, U.S. Department of Commerce, and
quarterly values were estimated using quarterly earnings data. CEI-N closely tracks Nebraska real GDP
for the period. The correlation coefficient between the two pictured series is 0.94.
Figure 8: Coincident Economic Indicator - Nebraska
Comparison with Nebraska Real Quarterly GDP
115.00
110.00
105.00
100.00
95.00
90.00
85.00
2001.1
2001.5
2001.9
2002.1
2002.5
2002.9
2003.1
2003.5
2003.9
2004.1
2004.5
2004.9
2005.1
2005.5
2005.9
2006.1
2006.5
2006.9
2007.1
2007.5
2007.9
2008.1
2008.5
2008.9
2009.1
2009.5
2009.9
2010.1
2010.5
2010.9
2011.1
2011.5
2011.9
80.00
CEI-N (May 2007=100)
Real GDP (May 2007=100)
Figure 9 again shows the values for the CEI-N. It also graphs 6-months forward values for the LEI-N.
Recall that the LEI-N is intended to forecast the Nebraska economy six months into the future. This
implies that Figure 9 is comparing the predicted movement in CEI-N (predicted by LEI-N values six
months earlier) with the actual movement in CEI-N. In Figure 9, predicted values using the LEI-N closely
track trends and movement in the CEI-N. The correlation coefficient between CEI-N and six-month
forward values of LEI-N is 0.92.
6-Month Forward Value of Leading Economic Indicator - Nebraska
Comparison with Coincident Economic Indicator - Nebraska
115.00
110.00
105.00
100.00
95.00
90.00
85.00
2001.1
2001.4
2001.7
2001.1
2002.1
2002.4
2002.7
2002.10
2003.1
2003.4
2003.7
2003.1
2004.1
2004.4
2004.7
2004.10
2005.1
2005.4
2005.7
2005.1
2006.1
2006.4
2006.7
2006.10
2007.1
2007.4
2007.7
2007.1
2008.1
2008.4
2008.7
2008.10
2009.1
2009.4
2009.7
2009.10
2010.1
2010.4
2010.7
2010.10
2011.1
2011.4
2011.7
2011.10
2012.1
2012.4
2012.7
2012.10
2013.1
2013.4
2013.7
2013.10
80.00
CEI-N (May 2007=100)
LEI-N, 6 Month Forward (May 2007=100)
6